Kuala Lumpur: Khazanah Nasional Bhd, the Malaysian sovereign fund, is considering selling as much as $500 million of exchangeable Islamic bonds, people with knowledge of the matter said.

The state-owned firm, which in 2006 became the first in the Sharia-compliant industry to sell such debt, is currently choosing banks for the potential offering, according to the people. The notes would be exchangeable into shares of companies controlled by Khazanah, the people said, asking not to be identified because the process is private.

Khazanah has been reducing stakes in listed Malaysian companies through Islamic debt offerings that can be converted into shares. The fund last sold $500 million sukuk that can be exchanged into shares of Tenaga Nasional Bhd, the country’s biggest power producer, in 2014. It is also the largest shareholder of IHH Healthcare Bhd, Asia’s biggest hospital operator, with a 41.2 per cent stake, data compiled by Bloomberg show.

“Khazanah’s planned sale will be a boost for the industry,” said Hasif Murad, an investment manager at Kuala Lumpur-based Aberdeen Islamic Asset Management Sdn., whose parent oversees the equivalent of $2.9 billion. “The supply pipeline has been relatively strong but has mostly been plain-vanilla sukuk. This helps with variety and diversification.”

Sales of Islamic bonds in Malaysia, the world’s biggest sukuk market, surged 60 per cent this year to 45.8 billion ringgit ($11.4 billion), while offerings of global sukuk climbed 19 per cent to $28.1 billion, data compiled by Bloomberg show.

Khazanah had a net asset value of 109 billion ringgit at the end of December, compared with 110.7 billion ringgit at the end of 2014, according to statements from the fund. A representative for Khazanah declined to comment.

The fund raised S$600 million ($444 million) from five-year exchangeable Islamic debt in 2013 that can be swapped into shares of IHH Healthcare. Khazanah’s exchangeable sukuk due in 2018 dropped S$1.33 to S$114.71 per S$100 face amount, driving up yields to the highest level in 2 1/2 weeks, according data compiled by Bloomberg.

Khazanah also issued the world’s first Sharia-compliant notes denominated in China’s yuan in Hong Kong in 2011, following the sale of S$1.5 billion in 5- and 10-year sukuk in Singapore the year before.